How to Stop Automatic Payday Loan Payments and Renewals

Payday loans can seem like quick, easy money when you need cash fast. But their high interest rates and short repayment terms can make them very difficult to pay off. Many payday lenders will automatically renew your loan and take payments directly from your bank account. This can trap you in an endless cycle of debt. Here’s how you can take back control and stop automatic payments.

Understand Your Rights

The good news is, you have the right to revoke authorization for automatic payments at any time, even if you agreed to them originally. Here are some key facts:

• You can stop electronic debits from your bank account by revoking the payment authorization, also called an “ACH authorization.”
• Revoking automatic payments does not cancel the loan itself – you still owe the remaining balance.
• If the lender refuses to stop the payments, you can dispute them with your bank as unauthorized.

These protections come from federal laws like the Electronic Fund Transfer Act. Your rights apply even if the lender is an online company based in another state. So don’t let them claim the law doesn’t apply to you!

Notify the Lender

The first step is telling the payday lender you want to revoke authorization for automatic payments. Here are some tips:

• Call their customer service number and clearly state you are revoking authorization for electronic debits from your account.
• Follow up in writing via letter or email to create a paper trail.
• Keep a copy of any letters you send for your records.
• If you’re cancelling the loan entirely, say so – otherwise they may assume you just want to change payment methods.

Get confirmation from the lender that they received your request and automatic payments will stop. Don’t take a verbal promise over the phone – insist on written confirmation.

Alert Your Bank

Next, contact your bank or credit union. Tell them you revoked authorization with the payday lender to debit your account. Ask them to block or reject any future automatic payments from the lender.

Give your bank advance notice – it can take up to three business days to process a stop payment request. You may need to sign a form making the request official. Just remember – you need to notify both the lender and your bank to successfully stop payments.

Watch Out for Renewals

Many payday loan agreements state that your loan will automatically renew at the end of the term unless you take action to stop it. These renewals continue accruing interest and fees!

So when you revoke automatic payments, also state clearly that you do not want your loan to renew automatically. The lender may require you to give written notice a certain number of days before your loan expires. Check your original loan agreement and follow any policies about written notification.

Arrange Alternate Payment

Remember – stopping automatic bank withdrawals doesn’t erase what you owe on the loan! Work out another payment arrangement with the lender, such as:

• Paying on a monthly installment plan
• Paying by money order or cashier’s check
• Paying by automatic bank withdrawals on a schedule you control

If you can’t come to an agreement, the lender may send your account to collections. This can hurt your credit score – so do your best to avoid it!

Get Help from Your State

If you’re struggling with payday loan payments, your state may offer some options. For example:

• Some states force lenders to offer extended payment plans – this stops fees and interest from snowballing.
• Contact your state attorney general’s office to ask about repayment plans or limits on loan renewals.
• The nonprofit group Consumer Federation of America lists consumer protection agencies by state here.

States like Colorado are reforming payday loan laws to make repayment easier. Check if protections in your state have recently changed.

Close Your Account

As a last resort, you may need to close your bank account to stop automatic withdrawals. This is obviously disruptive, so only use it if other efforts fail. Before closing your account:

• Open a new account at a different bank.
• Change your direct deposits and automatic payments to the new account.
• Leave enough funds in the old account to cover any pending payments – don’t trigger overdraft fees.

If you do close your account, notify the payday lender right away. And watch out for any outstanding checks or debits that could still go through.

Avoid Future Issues

Once you escape, it’s smart to avoid payday loans in the future. Here are some tips:

• Build up savings so you’re not dependent on credit.
• Explore lower-cost borrowing options like credit cards or family loans.
• If you need a payday loan, borrow only what you can realistically repay with your next paycheck.
• Never let a payday lender have direct access to your bank account.

Payday loans seem convenient but can trap you in a downward spiral. Take back control of your finances by stopping automatic payments – and make a plan so it never happens again. Your future self will thank you!